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Obamacare: The Cracks Are Showing

Rick Roeder September 2016

The past two months have been grim for ObamaCare. The latest blow comes from Blue Cross Blue Shield of Tennessee
("BCBST&quot). To deal with three years of financial losses, BCBST announced its decision to pull out of the three largest
metropolitan areas in the state for 2017. Earlier this summer BCBST requested and received state approval of a whopping
62% rate increase for next year. Federal approval is still pending amidst cynicism that the actions of the next six
weeks will be influenced by the presidential election. BCBST says that their losses on the Tennessee exchanges have
totaled $500 million in the past three years. The move is expected to reduce exchange enrollments with BCBST by
roughly 60%. Tennessee has 95 counties. BCBST’s pullout means that there will be only one insurer offering coverage in
73 counties. This lack of competition is a clear indictment of Obamacare’s expressed intent that the exchanges be a
"cauldron of competition.&quot For the Blues, large losses have also been reported on blocks of business in Minnesota,
Arizona, Alabama and North Carolina even after receipt of government subsidies designed to help insurers during the
transition to ObamaCare.

In August, the country’s third largest insurer, Aetna, announced its exit from 11 of 15 states in which Aetna
participated in insurance exchanges. Before Aetna’s announcement, United Health Group and Humana also announced their
reduced participation in exchanges. These exits have prompted hand wringing from states who are worried about the lack
of insurers. This leverage on the part of the dwindling, remaining insurers has also played a part in the acquiescing
to high rate increases by regulators. The fear of regulators denying large rate increases is that the insurer says
&quotgoodbye.&quot

To date, average 2017 premium increases in 21 participating exchange states are in the 20-30% range. However, this
statistic is slightly misleading. The Silver plans (There are four levels of coverage: Bronze, Silver, Gold and
Platinum) have relatively low premium rates and are the most popular plans on the exchanges. The Kaiser Foundation
projected a 9% 2017 for such plans. Consequently, logic dictates to assume that more enrollees will be shifting to the
Silver plans in 2017. Another important consideration is the degree of subsidy available in 2017. Roughly 80% of
enrollees receive a subsidy. There are instances where projected 2017 increases are offset by increased subsidy levels.

One clear benefit of ObamaCare is the reduction of the number of uninsured Americans by half to roughly 20 million.
However, the cost of the coverage for this added infux of insureds appears to have come at a higher cost than projected.
Given the highly partisan course that preceded the passage of ObamaCare, why is this not the least bit surprising?

ObamaCare has a number of warts with no easy resolution. Out-of-pocket costs for prescriptions are roughly double
in a Silver plan compared to a typical employer-sponsored plan. While Obamacare expanded dependent coverage to age 26,
college students living in different states than their parents have experienced difficulty in finding a participating
network. To make matters worse, many doctors and hospitals are not participating in ObamaCare.

ObamaCare has one unwitting, but strong, ally in Donald J. Trump. His large unpopularity ratings greatly increase
the chance that another weak candidate in Hillary Clinton will triumph in November, especially after many viewed their
initial debate as a triumph for Clinton. For ObamaCare to survive in anywhere close to its current form, one would
think a Clinton victory is essential.

Several years of ObamaCare leave us with this observation. The Affordable Care Act appears to be an untenable
compromise between pre-ObamaCare and national health care. Which approach will win out? Stay tuned.